Does all the VoIP traffic pass thru the Axon server? Or does Axon just handle authentication?

Axon is not just for Authentication; it Sets Up, Establishes, and Terminates the calls. As far as the audio goes, if Axon determines that the caller and receiver can't send audio to each other directly then it will also insert a relay - e.g. on an internal network running Microsoft Internet Connection Sharing. It will also insert a relay if you have chosen to setup Call Recording through VRS. If a relay is not required then audio will travel directly between the two phones.

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